Sunday, January 3, 2010

Market Update 01.10

Note: I have changed the name of my weekly update to "market update" from "technical update." As this will be my primary communique, it will have less of a technical analysis theme to it most weeks. This way, I won't feel obligated to post charts if nothing much has happened. And I'll be more able to branch out into other themes if attention warrants (silly really, it's my blog, I can always post whatever I want). So if you're not a TA type and have ignored my weekly columns hitherto, perhaps it will be of more interest this year.

Ironically, however, today I will just post a few charts. I'll have more big picture stuff later this week.

The last 30 minutes of trading in 2009 saw some heavy volume selling that essentially wiped out the previous 2 weeks' low volume gains. The markets still look overextended and tired. But as long as market participants are willing to ignore the creaking fundamentals underpinning these prices, they can remain where they are. I see social mood rolling over slowly as it has for months now, but it seems to be taking various groups of people with it separately. Those in the financial industry still seem to be euphoric in their expectations, while the masses are downright apocalyptic. This is the source of the sentiment dichotomy many are hearing about. Every couple of days a sentiment report will be released giving complete opposite readings. Either extremely bullish or extremely bearish. It's funny to watch.

So whether the end of year selloff meant anything or not largely depends on who is going to win this battle. Populist anger is growing toward the ineptitude of "reform" efforts. I continue to be shocked and amazed at how blatantly the efforts are designed to preserve the status quo - and in many cases even to encourage the same excesses that caused the crisis (eg. raising the cap limits for Fannie and Freddie, authorizing $4 Trillion dollars for future bailouts). I don't even know how to respond to something so idiotic. Should I be angry? Should I laugh? Should I bother to explain why it's a bad idea? Seriously, am I even going to write an article saying that increasing the cap limits for Fannie Mae is potentially disastrous? Would I spill ink explaining that drinking ammonia could be harmful to your health? The paralyzed reaction I've had toward this is something that I've seen in a lot of people. But I've noticed that a number of dissenting high-level officials have started coming forward. The backlash is growing. And it will win eventually. The banks always lose in the end. Banking has been around for millennia, yet few banks have survived a century. It is their nature to fail when populist anger toward their activities rises. Now some charts.

The S&P sold off to the upper band of its previous trading range. This could be supportive ahead of an early year push. More support resides around the 1085 level. Anything below 1060 looks like it would severely damage the integrity of the longer term charts.

The US dollar was halted at its 200 day EMA. There is big time support surrounding 76.50-77. If it can close a fair bit above its recent highs, I think it is lights out for the dollar bears.

Internals are mixed. But the Put/Call ratio hit a new low for the rally and appears to be putting in a reversal. Lower readings reflect more call buying and thus more optimism.

Good luck in 2010!

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Occdude said...

USD looks good short term, lets see how it holds up. Based on the strength of the break out, it would surprise me to see much of a pull back below the 50 day MA. A move below that would change the game so we'll see, but the buck is lookin good as we speak.

mike.montchalin said...

(eg. raising the cap limits for Fannie and Freddie, authorizing $4 Trillion dollars for future bailouts). I don't even know how to respond to something so idiotic.

Nuff said on the advisability of being idiotic and doing idiotic things.

Idiocy aside, John Hussman commented on the legality of the FED & Treasury usurping congress' power of the purse.

I tend to ignore the implausible. But the implausible, the idiotic, and the illegal are happening right before my very eyes.

There has to be fall out.

One might expect wild inflation. But this is really a case of assuming more debt. I mean, the FED and treasury are sticking those who pay for government with debt; more debt. It seems a sovereign default is on the horizon. That would mean US Bonds would not be bought at any price.

What do you think?

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